The US dollar is experiencing one of its biggest weekly drops against major currencies this year, while the Japanese yen has strengthened significantly, trading below 150 yen per dollar. Concerns about the global economic outlook are increasing, leading to these currency fluctuations.
The dollar’s decline began earlier this week when US inflation data came in lower than expected. This caused a shift in market expectations regarding the pace at which the US Federal Reserve will cut interest rates. As a result, the dollar is set for a 1.6% weekly fall, the largest drop since mid-July.
The dollar index, which measures the currency against a basket of other major currencies, was down 0.2% on the day at 104.14. Meanwhile, the euro rose slightly by 0.1% to $1.08615 following data confirming a significant slowdown in year-on-year inflation in the Eurozone for October.
The yen, which has been impacted by the strength of the dollar, broke the 150 mark against the dollar for the first time in nearly two weeks. The dollar lost almost 1% against the Japanese currency and was last down 0.9% at 149.32 yen.
Currency analyst Lee Hardman from MUFG explained that the yen’s strength reflects growing concerns about contracting global growth. He also noted that the Japanese terms of trade are less affected by falling energy prices, which contributes to the yen’s resilience.
In addition to the currency fluctuations, weak retail sales figures in the UK on Friday added to a series of negative indicators throughout the week. The pound remained relatively stable at $1.24230.
The sluggish data observed globally has sparked concerns about economic prospects. However, it also suggests that central banks may be succeeding in their efforts to curb soaring prices.
Futures markets are currently pricing in over 100 basis points of interest rate cuts in the US for next year, a trend that has contributed to the weakness of the dollar.
Currency analysts at ING explained that the dollar is now entering a “consolidative phase,” and it is not immediately clear what could act as a catalyst for further gains in the euro or other currencies.
Meanwhile, European Central Bank President Christine Lagarde emphasized the need for a capital markets union within the European Union. She stated that heavily indebted governments and banks alone cannot provide the necessary funds to enhance productivity and independence in the bloc.
Later on Friday, US housing starts data is set to be released, along with public comments from several Federal Reserve policymakers. In the world of cryptocurrencies, bitcoin is expected to end its four-week winning streak with a roughly 2% weekly fall to $36,223.
Overall, the current fluctuations in the foreign exchange market reflect concerns about the global economic outlook. Weaker-than-expected data, along with expectations of interest rate cuts, have contributed to the recent weakness of the US dollar. The Japanese yen’s strength can be attributed to growing anxieties about contracting global growth, as well as its resistance to falling energy prices. The situation is being closely monitored by central banks and investors alike.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )
